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Reference

Reference

Plain-English definitions for the terms you'll encounter on your financial journey.

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1031 Exchange🏠 Real Estate

A process that allows an investor to sell a property and reinvest the proceeds into a new property while deferring taxes.

A
ADR📈 Investing

American Depositary Receipt is a way for you to buy shares of a foreign company, such as a Japanese car manufacturer, through a U.S. stock exchange just like you would buy shares of a local business.

After-Hours Trading📊 Trading & Markets

Trading that occurs on electronic networks after the major stock exchanges have officially closed for the day.

C
CD💰 Personal Finance

Certificate of Deposit is a type of savings account where you agree to leave your money untouched for a set period, like one year, in exchange for a higher interest rate than a standard savings account.

Circuit Breaker📊 Trading & Markets

A regulatory measure that temporarily halts trading on an exchange to curb panic selling or extreme volatility.

Closed-End Fund📈 Investing

A portfolio of pooled assets that raises a fixed amount of capital through an IPO and then lists on an exchange.

Crawling Peg🌍 International Finance

An exchange rate regime where a currency is allowed to fluctuate within a range that is adjusted periodically by the central bank.

Currency Appreciation🏛️ Macroeconomics

An increase in the value of one currency relative to another currency in the foreign exchange market.

Currency Arbitrage🌍 International Finance

A financial strategy that involves exploiting differences in currency exchange rates across different global markets to secure a risk-free profit. Traders quickly buy a currency at a lower price in one venue and simultaneously sell it at a higher price in another.

Currency Depreciation🏛️ Macroeconomics

A fall in the value of a currency in a floating exchange rate system due to market forces.

Currency Peg🌍 International Finance

A policy in which a national government sets a specific fixed exchange rate for its currency with a foreign currency or a basket of currencies.

Currency Risk📈 Investing

The potential for loss caused by changes in exchange rates when investing in assets denominated in foreign currencies.

Currency Swap🌍 International Finance

A financial agreement where two parties exchange the principal and interest payments of a loan in one currency for those in another currency. It is often used by companies to reduce borrowing costs or manage exposure to exchange rate fluctuations.

D
Dark Pool📈 Investing

A private financial exchange where institutional investors can trade large blocks of securities without the public seeing the details until the trade is done.

Decentralized Exchange₿ Crypto & Digital Assets

A marketplace that allows for direct peer-to-peer cryptocurrency transactions without the need for an intermediary or central authority.

Decentralized Exchange (DEX)₿ Crypto & Digital Assets

A peer-to-peer marketplace where users can trade cryptocurrencies directly with one another without needing a central intermediary or broker.

Devaluation🏛️ Macroeconomics

A deliberate downward adjustment of a country's official exchange rate relative to another currency. This is usually performed by a central bank in a fixed exchange rate system.

Discount Points🏠 Real Estate

Optional fees paid to a lender at closing in exchange for a lower interest rate on a mortgage.

E
Exchange📊 Trading & Markets

A centralized marketplace where securities, commodities, and other financial instruments are traded under specific rules and regulations.

Exchange Rate🏛️ Macroeconomics

The value of one nation's currency versus the currency of another nation or economic zone. It determines how much of one currency is needed to buy another.

Exchange Rate Risk🌍 International Finance

The possibility that an investment's value will decrease due to changes in the relative value of the currencies involved.

Exchange-Traded Fund (ETF)📈 Investing

A type of security that involves a collection of securities that often tracks an underlying index.

Exchange-Traded Note (ETN)📈 Investing

An unsecured debt security that tracks an underlying index and trades on a major stock exchange.

F
Fixed Exchange Rate🏛️ Macroeconomics

A regime where the official value of a country's currency is pegged to another country's currency or to the price of gold. It is maintained by the central bank through market intervention.

Floating Exchange Rate🏛️ Macroeconomics

A regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies. Most major global economies use this system.

Foreign Exchange Market🌍 International Finance

The global electronic network where banks, brokers, and individuals trade different national currencies.

Foreign Exchange Market (Forex)🌍 International Finance

The global marketplace where currencies are traded against one another to determine their relative values.

Foreign Exchange Reserves🌍 International Finance

Assets held by a nation's central bank in foreign currencies to back its liabilities and influence its own exchange rate.

Forex🌍 International Finance

Foreign Exchange Market — A global marketplace where national currencies are traded against one another to determine exchange rates. It is the largest and most liquid financial market in the world.

Forward Rate🌍 International Finance

An exchange rate agreed upon today for a currency transaction that will occur on a specific date in the future.

H
Hedging🌍 International Finance

A financial strategy used to reduce or eliminate the risk of capital loss from unfavorable movements in exchange rates.

I
IPO📈 Investing

Initial Public Offering is the first time a private company sells shares of its stock to the general public on a stock exchange. This is the moment a company 'goes public,' allowing everyday investors to buy ownership in the business for the first time.

IRA💰 Personal Finance

Individual Retirement Account is a special investment account that offers tax advantages to help you save for your future retirement. It is like a personal savings vault that the government encourages you to use by giving you tax breaks in exchange for leaving the money untouched until you are older.

L
Leveraged ETF📈 Investing

An exchange-traded fund that uses debt and derivatives to amplify the daily returns of an underlying index.

M
Marketplace Subsidies📋 Government Programs

Health Insurance Marketplace Subsidies — Government financial assistance that lowers the monthly premium costs for health insurance plans purchased through the federal or state exchanges.

Merchant Cash Advance🏪 Small Business

A financing method where a business receives upfront cash in exchange for a portion of its future credit card sales.

MLP📈 Investing

Master Limited Partnership: This is a type of business structure that is traded on public stock exchanges but is taxed like a partnership, often used by energy companies like those moving oil or gas. It is designed to pass profits directly to investors without the company itself paying a corporate income tax first.

N
Non-Fungible Token (NFT)₿ Crypto & Digital Assets

A unique digital asset representing ownership of a specific item, such as digital art, which cannot be replaced or exchanged on a one-to-one basis.

O
Over-the-Counter (OTC)📊 Trading & Markets

The process of trading securities directly between two parties without the supervision of a formal exchange.

P
Pip🌍 International Finance

The smallest price movement in the exchange rate of a currency pair, usually represented by the fourth decimal place.

Points🏠 Real Estate

Fees paid directly to a lender at closing in exchange for a lower interest rate on a mortgage.

POS🏦 Banking

A Point of Sale is the specific place and moment where you complete a purchase, such as a checkout counter or a digital shopping cart. It is where the exchange of goods for money happens.

Private Equity📈 Investing

Capital that is not noted on a public exchange and is invested in private companies.

Purchasing Power Parity🏛️ Macroeconomics

An economic theory that compares different countries' currencies through a 'basket of goods' approach. It suggests that exchange rates should adjust so that the same goods cost the same in different countries.

R
Real Exchange Rate🌍 International Finance

The exchange rate between two currencies adjusted for the relative price levels or inflation rates in both countries.

Reserve Currency🌍 International Finance

A foreign currency held in significant quantities by central banks as part of their official foreign exchange reserves.

Revaluation🏛️ Macroeconomics

A deliberate upward adjustment of a country's official exchange rate. This increases the value of the domestic currency relative to foreign currencies in a fixed system.

Roth Conversion🏖️ Retirement

The process of moving funds from a traditional IRA or 401(k) into a Roth account, which requires paying taxes on the converted amount in exchange for future tax-free growth.

S
SDR🌍 International Finance

Special Drawing Rights are an international reserve asset created by the IMF that acts like a supplemental currency basket for member countries. Think of it as an emergency credit line that countries can use to exchange for actual currencies to help stabilize their national economy during tough times.

Sovereign Wealth Fund🌍 International Finance

A state-owned investment fund composed of financial assets such as stocks, bonds, or real estate, funded by a country's foreign exchange reserves.

Spot Rate🌍 International Finance

The current exchange rate at which a currency pair can be bought or sold for immediate delivery.

Staking₿ Crypto & Digital Assets

The act of locking up cryptocurrency tokens to help support the security and operation of a blockchain network in exchange for rewards.

Stock Exchange📊 Trading & Markets

A regulated marketplace where traders and investors buy and sell stocks, bonds, and other securities.

Swap📈 Investing

A derivative contract through which two parties exchange the cash flows or liabilities from different financial instruments.

V
Velocity of Money🏛️ Macroeconomics

The rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period. It helps economists measure the strength of the economy.